Iowa State Ag Economist Optimistic Because of Continuing Strong Exports03/27/2017
Iowa State Extension Economist Chad Hart sees a brighter picture for agriculture in 2017 thanks to growth in international demand.
At the Hills Bank Ag Outlook conference March 9, Hart said he expected to see near-record supplies again this year, both domestically and globally, but expected record demand to support prices.
He said he is worried about trade rhetoric with Mexico, but hopes tough talk won’t mess up trade flows.
“Are we going to build a wall? Yep, we will. I want something built into it though: What I really want in it is a drive-through window,” Hart said. “Because when you are looking at Mexico and the corn market, they are 25 percent of our exports.”
With corn exports up nearly 60 percent from year-ago levels to top export markets, he said countries that are buying may be stock piling in case the rules change.
In 2016, world production was at record levels, Hart said. But China, the world’s second largest corn producer, saw decreased corn production last fall.
In a quest to be self-sufficient in corn production, China established a $9 price target for corn, boosting China’s domestic corn production but creating a costly dilemma for China’s livestock feeders.
China’s livestock feeders imported cheaper corn, and now the country has large stockpiles.
“What used to be #2 yellow corn is suddenly becoming #4 mixed grain, and they are losing value,” Hart said.
China began a multistep process to phase out the price target, and the result has already been lower corn plantings, he said.
“In the short term, that’s a negative. But over the long run, I’m going to argue it’s a positive for us,” Hart said.
Other consequences from China’s new policy include higher soybean plantings in China and increased tariffs for feeds competing for storage space with corn, namely distiller’s grains.
With a hog industry six times larger than the one in the United States and soybean imports three times larger than China’s own production, Hart said China should continue to support a “tremendous export market.”
Surging meat exports to developing countries will ultimately support grain prices as well, Hart said.
“What we’re seeing right now, and have been experiencing over the last six months especially, has been a strong surge in overall agricultural demand as we watch the developing world transition some of their food demand from plant protein to meat protein,” Hart said.
Ethanol and biodiesel should also continue to grow, he said.
Hart said consumers are choosing higher ethanol blends at the gas pump because they are cheaper. As an example of the cost competitiveness of ethanol today, he pointed to exports to the United Arab Emirates, which is importing ethanol to address smog.
Looking to policy, Hart said he is glad to see the Trump administration has picked people in agriculture who understand why ag trade is important, such as former Georgia Governor Sonny Perdue, who comes from a cotton-producing state which relies heavily on exports, and Iowa Governor Terry Branstad.
Dan Mitchell, a fiscal policy expert with the Cato Institute, cautioned that Trump’s top trade appointments, Peter Navarro, Wilbur Ross and Robert Lighthizer, have all expressed protectionist rhetoric.
Mitchell questioned the logic that we are somehow cheated if other countries don’t buy as much from us we buy from them. He said this is the case when he shops for groceries, but that’s because he values their food more than his paper money.
“I think Trump is wrong on protectionism, the real question is, how far will he take it?” he said.
On regulatory policy, Mitchell said he was very optimistic. Trump “seems to want to reduce the burden of regulation and red tape,” Mitchell said. But he questioned how progress would be defined – by blocking additional regulations or undoing existing regulations, which involves the federal rulemaking process.
Jim Tobin, a former Monsanto executive and current advisory board member, discussed ag mergers during the conference.
Tobin said approval in Europe will mostly likely be the deciding factor as to whether mergers between ag companies Syngenta and ChemChina, Dow and DuPont and Bayer and Monsanto will proceed.
A decision on the Syngenta merger approval in Europe could be coming later this month; with the Dow decision potentially one to two months out; and a Bayer decision not likely until the end of the year, Tobin said.
He expected more integrated product offerings as a result of the mergers, and said all three proposed entities have full research and development pipelines.